# M/s K.J. Entp., Agra v. State of U.P. & Ors

- **Citation:** (2024) 3 ILRA 1820
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-02-01
- **Case number:** Writ Tax No. 1544 of 2022
- **Bench:** Shekhar B. Saraf
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-k-j-entp-agra-v-state-of-u-p-ors-51625
- **Pages:** 7

## Headnote

Services Tax Act, 2017 - Sections 74 &
75(4) - Assessment and penalty proceedings -
denial of personal hearing - statutory mandate
of opportunity of hearing - interpretation of the
word "or" in Section 75(4) - opportunity of
hearing
mandatory
either
on
request
of
assessee
or
where
adverse
order
is
contemplated - no personal hearing granted
before passing adverse order imposing tax,
interest and penalty - gross violation of
principles of natural justice -procedural illegality
- availability of alternative remedy not a bar
where order passed in breach of natural justice
- impugned assessment and appellate orders
unsustainable - orders quashed - matter
remanded with direction to grant personal
hearing and pass reasoned order in accordance
with law.

Writ petition allowed. (E-9)

Cases Cited:

## Text

1820 INDIAN LAW REPORTS ALLAHABAD SERIES

18. The show cause notice dated
20.06.2022 passed by the respondent No.5
is vague.

19. The order dated 13.07.2022
passed by the respondent No.3 and the
order dated 06.10.2023 passed by the
respondent No.4 as well as the show cause
notice dated 20.06.2022 passed by the
respondent No.5 are liable to be quashed
and are quashed.

20. The writ petition is allowed.

21. It is open to the authorities to
proceed afresh against the petitioner in
accordance with law.
----------
(2024) 3 ILRA 1820
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 01.02.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.

Writ Tax No. 1544 of 2022

M/s K.J. Entp., Agra ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri Pranjal Shukla

Counsel for the Respondent:
Sri Ravi Shankar Pandey, Addl. C.S.C.

The Uttar Pradesh Central Goods &
Services Tax Act, 2017 - Sections 74 &
75(4) - Assessment and penalty proceedings -
denial of personal hearing - statutory mandate
of opportunity of hearing - interpretation of the
word "or" in Section 75(4) - opportunity of
hearing
mandatory
either
on
request
of
assessee
or
where
adverse
order
is
contemplated - no personal hearing granted
before passing adverse order imposing tax,
interest and penalty - gross violation of
principles of natural justice -procedural illegality
- availability of alternative remedy not a bar
where order passed in breach of natural justice
- impugned assessment and appellate orders
unsustainable - orders quashed - matter
remanded with direction to grant personal
hearing and pass reasoned order in accordance
with law.

Writ petition allowed. (E-9)

Cases Cited:

1. Commissioner of Sales Tax, Uttar Pradesh v.
The Modi Sugar Mills Ltd., MANU/SC/0276/1960
(Supreme Court).
Bharat
Mint
and
Allied
Chemicals
v.
Commissioner, Commercial Tax and Others,
2022 SCC OnLine All 1088 (Allahabad High
Court - Division Bench).

2. Mohini Traders v. State of U.P. and Others,
MANU/UP/2440/2023 (Allahabad High Court -
Division Bench).

3. M/s Primeone Work Force Pvt. Ltd. v. Union
of India, 2024:AHC-LKO:3533-DB (Allahabad
High Court - Division Bench).

4. Dharampal Satyapal Limited v. Deputy
Commissioner of Central Excise, Guwahati and
Others, (2015) 8 SCC 519 (Supreme Court).

(Delivered by Hon'ble Shekhar B. Saraf, J.)

1. Heard counsel appearing on behalf
of the parties.

2. This is a writ petition under Article
226 of the Constitution of India wherein the
petitioner M/S K.J. Enterprises is aggrieved
by the order dated September 26, 2022,
passed by the Additional Commissioner,
Grade - 2, (Appeals - 1st), Commercial
Tax, Agra (hereinafter referred to as the
'Respondent
No.
2').
3 All. M/s K.J. Entp., Agra Vs. State of U.P. & Ors.
1821

3. Factual matrix of the instant case is
provided below:

a. Petitioner is a proprietorship
firm carrying the business of job work of
scrap, selling, and purchasing of iron
machinery parts and hardware.

b. The petitioner, during the
month of March 2018, purchased inputs
from different registered firms, in which
ITC claim was made as per the Uttar
Pradesh Goods and Services Tax Act, 2017
(hereinafter referred to as the 'UPGST Act,
2017').

c. The petitioner also made
transactions in the year 2019-20 and in this
regard, bills were issued, in which details
of the goods were mentioned.

d.
On
July
24,
2019,
an
inspection was carried out at the premises
of the petitioner and at the time of
inspection,
the
authorities
asked
the
petitioner to deposit the amount in DRC -
03.

e. Thereafter, a summon was
issued to the petitioner under Section 70 of
the UPGST Act, 2017 directing the
petitioner to appear before the concerned
authority on August 13, 2019, at 11:00 am
along with stock register and other relevant
documents for verification.

f. A show cause notice was also
issued by the respondents on July 22, 2020,
under Section 74 of the UPGST Act, 2017
for tax period 2019-20, alleging that the
petitioner wrongly availed input tax credit
amounting to INR 22,00,00,000/- against
bogus tax invoices and utilized the same by
fraud or misstatement, suppression of facts,
etc.

g. Another notice was issued on
September
17,
2020,
directing
the
petitioner to furnish a reply on October 6,
2020. Petitioner thereafter furnished reply
on October 1, 2020.

h. Deputy Commissioner, State
Tax, Sector - 4 (hereinafter referred to as
the 'Respondent No. 3') rejected the reply
of the petitioner vide order dated August
10, 2021, passed under Section 74 of the
UPGST Act, 2017 for the A.Y. 2019-20 and
imposed tax and penalty, along with
interest, upon the petitioner amounting to
INR 6,78,12,667.92/-.

i. The petitioner preferred an
appeal before the Respondent No. 2 against
the
aforesaid
order
passed
by
the
Respondent No. 3. By an order dated
September 26, 2022, the Respondent No. 2
upheld the order of Respondent No. 3, and
imposed tax and penalty on the petitioner.

4. Without delving into the merits of
the instant case, it is crystal clear that an
opportunity of 'personal hearing' was not
afforded to the petitioner which is a
mandatory requirement under Section 75(4)
of the UPGST Act, 2017 which has been
extracted below:

"75(4) An opportunity of hearing
shall be granted where a request is received
in writing from the person chargeable with
tax or penalty, or where any adverse
decision is contemplated against such
person."

(emphasis added)

5. Even if no request is received from
the person chargeable with tax or penalty,
an opportunity of personal hearing must be
granted
if
any
adverse
decision
is
contemplated against such person.

6. When the word 'or' is used in a
statute,
it
serves
as
a
disjunctive
conjunction, indicating two
or
more
alternatives. Each option presented is to be
considered independently. It is crucial to
recognize that the disjunctive nature of "or"
1822 INDIAN LAW REPORTS ALLAHABAD SERIES
precludes its interpretation as a conjunctive
conjunction, such as "and". Unlike, "and",
which implies a requirement for the
simultaneous
fulfilment
of
multiple
conditions, "or" allows for flexibility and
choice by permitting compliance with any
one
of
the
alternatives
presented.
Attempting to read "or" as "and" in a
statute would fundamentally alter its
meaning and undermine the legislative
intent behind its use. Such an interpretation
would impose stricter criteria or conditions
than intended by the statute, potentially
leading
to
absurd
or
unreasonable
outcomes.

7. Courts have consistently upheld the
disjunctive nature of "or" in statutory
interpretation, adhering to the principle of
giving effect to the plain and ordinary
meaning of the language used in the
statutes. This principle, known as the plain
meaning rule or the literal rule of
interpretation, emphasizes the importance
of interpreting statutes based on their plain
and ordinary meaning, as understood by the
average person reading the text of the
statute. Moreover, the disjunctive function
of "or" in statutes is essential for upholding
principles of fairness, equity, and access to
justice. By offering alternative paths or
options, statutes accommodate diverse
individual needs and situations, promoting
inclusivity
and
mitigating
potential
disparities or injustices. This is particularly
significant in areas of law concerning
rights, benefits, and entitlements, where the
flexibility provided by "or" ensures that
legal provisions can be applied in a manner
that reflects the realities and complexities
of human experiences.

8. In Commissioner of Sales Tax,
Uttar Pradesh -v- The Modi Sugar Mills
Ltd., reported in, MANU/SC/0276/1960,
the Supreme Court affirmed that while
interpreting taxing statutes, courts must
look at the words used in the statute, and
interpret a taxing statute considering what
has been clearly expressed:

"....In
interpreting
a
taxing
statute,
equitable
considerations
are
entirely out of place. Nor can taxing
statutes be interpreted on any presumptions
or assumptions. The court must look
squarely at the words of the statute and
interpret them. It must interpret a taxing
statute in the light of what is clearly
expressed : it cannot imply anything which
is
not
expressed;
it
cannot
import
provisions in the statutes so as to supply
any assumed deficiency."

9. The significance of the word "or''
in Section 75(4) of the UPGST Act, 2017
cannot be underestimated. The usage of the
word "or'' extends beyond its disjunctive
function; it serves as a pivotal indicator of
legislative intent regarding the necessity of
providing an opportunity for personal
hearing. By incorporating "or'' into the
statutory language, lawmakers explicitly
delineate two distinct scenarios in which
the opportunity of personal hearing must be
afforded: either upon application by the
individual subject to penalty or tax
imposition, or in the event of contemplation
of an adverse order. Personal hearing
represents
a
fundamental
aspect
of
procedural fairness and natural justice,
ensuring
that
individuals
have
the
opportunity to present their case, respond to
allegations, and address any concerns or
mitigating factors directly to the decisionmaker. It is a vital safeguard against
arbitrary or unjust decisions. The inclusion
of "or'' in Section 75(4) of the UPGST Act,
2017, emphasizes the dual nature of the
obligation to provide a personal hearing,
3 All. M/s K.J. Entp., Agra Vs. State of U.P. & Ors.
1823
accommodating both proactive requests
from individuals seeking to defend their
interests and reactive responses to adverse
orders contemplated by tax authorities. In
either scenario, the statutory mandate
remains clear: the individual must be
afforded an opportunity for personal
hearing before any final determination is
made regarding tax or penalty imposition.
Moreover, the statutory mandate for
personal
hearing
reflects
an
acknowledgement of the complex and
multifaceted nature of tax and penalty
determinations,
which
often
involve
intricate legal and factual considerations.
Personal hearing provides a forum for
nuanced discussion and exploration of
these complexities, enabling decisionmakers
to
make
well-informed
and
equitable
decisions
based
on
a
comprehensive
understanding
of
the
circumstances at hand.

10. A Division Bench of this Court in
Bharat Mint and Allied Chemicals v.
Commissioner Commercial Tax and Others
reported in 2022 SCC OnLine All 1088,
underscored the significance of providing
an opportunity for personal hearing as
contemplated under Section 75(4) of the
UPGST Act, 2017. Relevant paragraphs
have been extracted below:

"9.From perusal of Section 75(4)
of the Act, 2017 it is evident that
opportunity of hearing has to be granted by
authorities under the Act, 2017 where
either a request is received from the person
chargeable with tax or penalty for
opportunity of hearing or where any
adverse decision is contemplated against
such person. Thus, where an adverse
decision is contemplated against the
person, such a person even need not to
request for opportunity of personal hearing
and it is mandatory for the authority
concerned to afford opportunity of personal
hearing before passing an order adverse to
such person.
***

12.It has also been admitted in
the counter affidavit that except permitting
the petitioner to reply to the show cause
notice, opportunity of personal hearing has
not been afforded to the petitioner. Thus the
legislative mandate of Section 75(4) of the
Act to the authorities to afford opportunity
of hearing to the assessee i.e. to follow
principles of natural justice, has been
completely violated by the respondents
while passing the impugned order.

13.The
stand
taken
by
the
respondents in the counter affidavit that the
writ petition is not maintainable as the
petitioner has an alternative remedy of
appeal under Section 107 of the Act, can
also not be accepted inasmuch as it is
settled law that availability of alternative
remedy is not a complete bar to entertain a
writ petition under Section 226 of the
Constitution of India. Certain exceptions
have been carved out by Hon'ble Supreme
Court that a writ petition under Article 226
of the Constitution of India may be
entertained even there is an alternative
remedy. One of the principle in this regard
is that if the order impugned has been
passed in gross violation of principles of
natural justice. It is admitted case of the
respondents that no opportunity of personal
hearing, as contemplated under Section
75(4) of the Act, 2017, was afforded to the
petitioner before passing the impugned
order.

14.During the course of hearing
of this writ petition, learned standing
counsel has produced before us a photo stat
copy of the order of the Assessing Authority
relating to the impugned order and perusal
thereof shows that no opportunity of
1824 INDIAN LAW REPORTS ALLAHABAD SERIES
hearing as contemplated under Section
75(4) of the Act, 2017 was not afforded to
the petitioner. Thus, there being patent
breach of principles of natural justice, the
present writ petition is maintainable
against the impugned order."

11. The view taken in Bharat Mint
and Allied
Chemicals
(supra)
was
reiterated by another Division Bench of this
Court in Mohini Traders v. State of U.P.
and
Others
reported
in
MANU/UP/2440/2023.
Relevant
paragraphs have been extracted below:

"7. We find ourselves in complete
agreement with the view taken by the
coordinate bench in Bharat Mint & Allied
Chemicals (supra). Once it has been laid
down by way of a principle of law that a
person/assessee is not required to request
for "opportunity of personal hearing" and
it remained mandatory upon the Assessing
Authority to afford such opportunity before
passing an adverse order, the fact that the
petitioner may have signified 'No' in the
column meant to mark the assessee's choice
to avail personal hearing, would bear no
legal consequence.

8. Even otherwise in the context
of an assessment order creating heavy civil
liability,
observing
such
minimal
opportunity of hearing is a must. Principle
of natural justice would commend to this
Court to bind the authorities to always
ensure to provide such opportunity of
hearing. It has to be ensured that such
opportunity is granted in real terms. Here,
we note, the impugned order itself has been
passed on 25.11.2022, while reply to the
show-cause-notice had been entertained on
14.11.2022. The stand of the assessee may
remain unclear unless minimal opportunity
of hearing is first granted. Only thereafter,
the explanation furnished may be rejected
and demand created.

9. Not only such opportunity
would ensure observance of rules of
natural of justice but it would allow the
authority to pass appropriate and reasoned
order as may serve the interest of justice
and allow a better appreciation to arise at
the next/appeal stage, if required."

12. Recently, in M/s Primeone Work
Force Pvt. Ltd. v. Union of India,
reported in 2024:AHC-LKO:3533-DB, the
Division Bench of this Court, stated that an
opportunity of hearing is mandatorily
required to be given if tax and penalty are
to be imposed:

"6. Section 75(4) of the Act of
2017 specifically states 'or where any
adverse decision is contemplated against
such person'.

7. Since in the present cases, both
tax and penalty are imposed against the
petitioners and admittedly, an adverse
decision is contemplated against the
petitioners, therefore, under Section 75(4)
of the Act of 2017, an opportunity of
hearing was mandatorily required to be
given by the department to the petitioners
and merely marking the same as "NO" in
the option cannot entitle the department to
pass
an
order
without
giving
any
opportunity or even without waiting for the
petitioners to appear on the date fixed. This
Court has already taken a similar view in
M/s. Mohini Traders (supra). 8. In view
thereof, all the writ petitions are allowed on
the sole ground of opportunity of hearing
and the orders impugned in all four writ
petitions are quashed."

13.

The
Supreme
Court
in
Dharampal Satyapal Limited v. Deputy
Commissioner of Central Excise, Guhati
3 All. M/s K.J. Entp., Agra Vs. State of U.P. & Ors.
1825
and Others reported in (2015) 8 SCC 519,
upheld the importance of personal hearing
before making any decision. The Supreme
Court stated that even in administrative
actions, where the decision of the authority
may result in civil consequences, a hearing
before
taking
decision
is
necessary.
Relevant paragraphs have been extracted
below:

"33.In his separate opinion,
concurring on this fundamental issue, K.
Ramaswamy, J. echoed the aforesaid
sentiments in the following words : (ECIL
case[(1993) 4 SCC 727 : 1993 SCC (L&S)
1184 : (1993) 25 ATC 704] , SCC p. 773,
para 61)

"61.It is now settled law that the
proceedings
must
be just, fair
and
reasonable and negation thereof offends
Articles 14 and 21. It is well-settled law
that the principles of natural justice are
integral part of Article 14. No decision
prejudicial to a party should be taken
without
affording
an
opportunity
or
supplying the material which is the basis
for the decision. The enquiry report
constitutes fresh material which has great
persuasive force or effect on the mind of the
disciplinary authority. The supply of the
report along with the final order is like a
post-mortem certificate with putrefying
odour. The failure to supply copy thereof to
the delinquent would be unfair procedure
offending not only Articles 14, 21 and
311(2) of the Constitution, but also, the
principles of natural justice."

34.Likewise,
inC.B.
Gautamv.Union of India[(1993) 1 SCC 78]
, this Court once again held that principle
of natural justice was applicable even
though it was not statutorily required. The
Court took the view that even in the
absence of statutory provision to this effect,
the authority was liable to give notice to
the affected parties while purchasing their
properties under Section 269-UD of the
Income Tax Act, 1961. It was further
observed that : (SCC p. 104, para 30)

"30.... The very fact that an
imputation of tax evasion arises where an
order for compulsory purchase is made and
such an imputation casts a slur on the
parties to the agreement to sell lead to the
conclusion that before such an imputation
can be made against the parties concerned,
they must be given an opportunity to show
cause that the undervaluation in the
agreement for sale was not with a view to
evade tax."

It is, therefore, all the more
necessary that an opportunity of hearing is
provided.

35.From the aforesaid discussion,
it becomes clear that the opportunity to
provide
hearing
before
making
any
decision was considered to be a basic
requirement in the court proceeding. Later
on, this principle was applied to other
quasi-judicial
authorities
and
other
tribunals and ultimately it is now clearly
laid down that even in the administrative
actions, where the decision of the authority
may result in civil consequences, a hearing
before taking a decision is necessary. It
was,
thus,
observed
inA.K.
Kraipak
case[(1969) 2 SCC 262] that if the purpose
of rules of natural justice is to prevent
miscarriage of justice, one fails to see how
these rules should not be made available to
administrative
inquiries.
InManeka
Gandhiv.Union of India[(1978) 1 SCC 248]
also the application of principle of natural
justice was extended to the administrative
action of the State and its authorities. It is,
thus, clear that before taking an action,
service of notice and giving of hearing to
the noticee is required. InMaharashtra
State Financial Corpn.v.Suvarna Board
Mills[(1994) 5 SCC 566] , this aspect was
1826 INDIAN LAW REPORTS ALLAHABAD SERIES
explained in the following manner : (SCC
p. 568, para 3)

"3.It has been contended before
us by the learned counsel for the appellant
that principles of natural justice were
satisfied before taking action under Section
29, assuming that it was necessary to do so.
Let it be seen whether it was so. It is well
settled that natural justice cannot be placed
in a straitjacket; its rules are not embodied
and they do vary from case to case and
from one fact-situation to another. All that
has to be seen is that no adverse civil
consequences are allowed to ensue before
one is put on notice that the consequence
would follow if he would not take care of
the lapse, because of which the action as
made known is contemplated. No particular
form of notice is the demand of law. All will
depend on facts and circumstances of the
case."

14. From a bare reading of the order
dated August 10, 2021 passed by the
Respondent No. 3 it is palpably clear that
no opportunity of personal hearing was
afforded by the Respondent No. 3 to the
petitioner, which is a statutory obligation
under Section 75(4) of the UPGST Act,
2017. Furthermore, the Respondent No. 2,
while dismissing the appeal failed to
correct this glaring impropriety in its order
dated September 26, 2022. These orders
cannot be allowed to pass through the
legislative barriers of natural justice,
erected to safeguard individual rights and
prevent abuse of power.

15. In light of the aforesaid
discussion, let there be a writ of certiorari
issued against the order dated August 10,
2021 passed by the Respondent No. 3 and
order dated September 26, 2022, passed by
the Respondent No. 2. These orders are
quashed and set aside. Consequential relief
to follow. The Respondent No. 2 is directed
to grant an opportunity of personal hearing
to the petitioner and thereafter pass a
reasoned order in accordance with the law
within a period of two months from date.

16. This writ petition is, accordingly,
allowed.
----------
(2024) 3 ILRA 1826
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 27.02.2024

BEFORE

THE HON'BLE ANJANI KUMAR MISHRA, J.
THE HON'BLE JAYANT BANERJI, J.

Writ-C No. 200 of 2018

Suresh Chand & Ors. ...Petitioners
Versus
Commissioner, Aligarh & Ors.
 ...Respondents

Counsel for the Petitioners:
Sri Deena Nath, Sri Deepak Kumar, Sri Shubham
Yadav

Counsel for the Respondents:
C.S.C.
Civil Law - Constitution of India,1950Article
226-Mines
and
Minerals
(Development of Regulation) Act,1957Section 21-UP Minor Minerals(Concession)
Rules,1963 amended 2014-Rule 3-the
petitioners
were
accused
of
illegally
mining 3689 cubic meters of soil from plot
no. 139-a notice was issued to the
petitioners demanding Rs. 2,83,230/- as
royalty
and
penalty-The
District
Magistrate and the Commissioner upheld
the
penalty-The
court
dismissed
the
petition stating that the petitioners failed
to prove the soil extraction was for
permissible activities like brick-making or
pottery-The court analyzed the Rule 3
including amendments and exceptions for